Small Business Contracts Diverted to Large Corporations: A Growing Problem

As Congress proposes new legislation to further ease the way for large corporations to receive federal small-business contracts, a growing body of evidence reveals that billions of dollars in such awards have been diverted to giant defense contractors and other multinational corporations. The Small Business Administration's own inspector general has called this a top challenge for the government, and research has found that the list of firms receiving hundreds of millions in small-business contracts contains some of the world's largest companies.

Key Takeaways:

• Over a dozen federal investigations in the past 36 months have found that billions of dollars in federal small-business awards have been diverted to some of the largest companies in the world, including Boeing, Bechtel, and Lockheed Martin.
• The problem is so severe that the Small Business Administration's inspector general has called it one of the government's biggest challenges.
• The Senate SBA Reauthorization Bill proposes to increase the small-business size standard by more than 100 times the average American small business of 10 to 12 employees, allowing large firms with up to 1,500 employees to take contracts away from legitimate small businesses.
• The House SBA Reauthorization bill contains a provision that would repeal the current federal law that prevents large franchisers from illegally receiving small-business contracts by using their franchisees as fronts.
• Research has estimated that the diversion of small-business contracts to large companies could top $100 billion a year, even without the proposed new loopholes.
• The SBA Office of Advocacy reported that $119 billion in prime and subcontracts were awarded to small businesses in one year, but factoring in the magnitude of the abuse by Fortune 1000 corporations, it's projected that small businesses with 100 employees or fewer may be receiving less than $20 billion a year.

Statistics:

• Over 100 times the average small business of 10 to 12 employees would be eligible for contracts under the proposed new, tiered system
• Up to 1,500 employees would be allowed to receive small-business contracts under the new size standard
• $100 billion: Estimated diversion of small-business contracts to large companies per year
• $119 billion: Amount of prime and subcontracts awarded to small businesses in one year (SBA Office of Advocacy)
• $20 billion: Projected amount received by small businesses with 100 employees or fewer per year (estimated)

Sources:

• "Research has found that the list of firms receiving hundreds of millions in small-business contracts contains a who's who of giant defense contractors, including Boeing, Bechtel and Lockheed Martin." (Sources not provided for this specific claim, but it is attributed to an unstated investigation or report)
• "The SBA Office of Advocacy reported that $119 billion in prime and subcontracts were awarded to small businesses in one year." (Source: SBA Office of Advocacy)
• "It now appears that the federal system that was set up to help small businesses has, without question, led to the destruction of hundreds of thousands of businesses within the past few years." (Source: Author)
• "The Senate SBA Reauthorization Bill proposes to increase the small-business size standard by more than 100 times the average American small business of 10 to 12 employees" (Source: SBA Reauthorization Bill)
• "Rep. Don Manzullo, R-Ill., has put forth a provision as part of the House SBA Reauthorization bill that would repeal the current federal law that prevents large franchisers from illegally receiving small-business contracts by using their franchisees as fronts." (Source: Rep. Don Manzullo, R-Ill.)